Home Health & Hospice Week

Oxygen rental cap backlash to continue, expert predicts.

Reimbursement reductions took the air out of 2005 earnings for several respiratory home medical suppliers, recent earnings reports show.

Orlando, FL-based Rotech Healthcare Inc. and Clearwater, FL-based Lincare Holdings Inc. both pointed to Medicare reimbursement reductions for respiratory medications, durable medical equipment and oxygen equipment rentals as explanation for lower fourth quarter and year-end 2005 earnings.

Reports Provide Earnings Detail

Rotech reported $533.2 million net revenues for the year ended Dec. 31, 2005, compared to net revenues of $535.3 million for 2004, the company said in a Feb. 23 release. Rotech's net income was $5.5 million for 2005, down from $36.0 million for 2004.

Rotech's fourth quarter 2005 net revenues were $139.9 million versus $139.7 million for the fourth quarter of 2004. Net income was $4.3 million for fourth quarter 2005 compared to net income of $8.9 million for fourth quarter of 2004.

Lincare's 2005 revenues were $1.267 billion, compared to $1.269 billion for 2004, the company reports in a release. Net income for 2005 was $213.7 million, down from $273.4 million for the prior year.

Lincare reported fourth quarter 2005 revenues of $326.1 million, compared with $324.2 million for the fourth quarter of 2004. Net income for fourth quarter 2005 was $55.1 million, compared to net income of $72.7 million for the fourth quarter of 2004.
 
"We continue to gain market share in our core respiratory business while controlling costs and reinvesting capital to sustain growth," Lincare CEO John P. Byrnes says in the release.

Medicare cuts have come fast and furious for the respiratory market, says Bob Leonard with Pittsburgh-based mergers and acquisitions company The Braff Group. These earnings results show the impact of those cuts.

Watch for: Unlike previous cuts that forced suppliers to tighten their belts and bear the brunt of the financial impact, the newly imposed 36-month cap on oxygen rental will likely impact patient out-of-pocket expenses as well, Leonard predicts. Patient groups and providers have already been pushing back against these changes and the backlash will continue and increase, he says.